Why Russia Is Dumping Dollars And Buying Gold At The Fastest Pace In Decades

2018 marked the most “ambitious year yet” for Russia gold-buying.

Cross-posted from Zero Hedge

Nine months ago, as US Treasury yields were drifting lower from a seven-year high reached in May of last year, we pointed out a curious development in the market for US sovereign debt that to our complete lack of surprise had been overlooked by the mainstream financial press: In April and May, Russia’s central bank liquidated $81 billion in Treasurys, nearly its entire holdings.

The drop was so significant, that Russia fell off the Treasury’s list of the 30 or so largest Treasury holders. And in the months that have followed, as the US has imposed more economic sanctions and feuded with Putin over the fate of Venezuelan leader Nicolas Maduro, Vladimir Putin has turned instead to alternative reserves as the country’s de-dollarization push continued.

Over the same period of time, Russia was a conspicuously large buyer of Chinese yuan, as Goldman Sachs noted (and as we highlightedwell earlier today), helping contribute to a spike in yuan buying by reserve managers last year, as the IMF pointed out in a recent report.

Reserves

Reserves

But given the yuan’s still-limited convertibility, it has its limitations as a reliable reserve for foreign central banks. Which is probably why Moscow has relied on another reserve option whose popularity has endured for most of the history of human civilization: Gold.

Data from the Russian central bank cited by Bloomberg show that its gold reserves have nearly quadrupled over the past ten years, and that 2018 marked the most “ambitious year yet” for Russia gold-buying, which coincided with the Central Bank of Russia’s mass-dumping of its Treasury holdings.

Russia

And in a rare, if muted, acknowledgement from the American financial press that de-dollarization is a contemporary threat that should be taken seriously, BBG said that “analysts, who have coined the term de-dollarization, speculate about the global economic impacts if more countries adopt a similar philosophy and what it could mean for the dollar’s desirability compared with other assets, such as gold or the Chinese yuan”

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